Large- and mid-cap technology stocks have delivered stellar returns over the past year due to  changes in consumer behavior. At the peak of their run in September 2020, the top five technology companies accounted for 25% of the value of the S&P 500. Their astonishing rally has led several analysts to conclude that the market has entered a bubble period, similar to the 2000 dot-com bubble, which may burst at any time.

We think that to protect against a market downturn, it may be better to invest in small-cap technology stocks that are overlooked and have upside potential. The re-opening of the economy with the COVID-19 vaccine rollout is expected to be more favorable for small-cap stocks than  their large- and mid-cap counterparts that are already trading at high valuations. In particular, small-cap stocks in the technology space may deliver high rewards due to greater scalability.

Silicon Motion Technology Corporation (SIMO – Get Rating), Axcelis Technologies, Inc. (ACLS – Get Rating), ChannelAdvisor Corporation (ECOM – Get Rating), and Mitek Systems, Inc. (MITK – Get Rating) are on a trajectory for strong growth, we believe. These companies are innovating fast and their latest offerings may drive their stock prices higher.

Silicon Motion Technology Corporation (SIMO – Get Rating)

SIMO designs, develops, manufactures, and markets low-power semiconductor solutions to enterprise customers. The company operates primarily  in the mobile communications and storage segments. SIMO’s stock has gained 33.9% over the past year and closed Friday’s trading session at $61.7.

SIMO  recently launched its  SM8266 solid-state drive. The SM8266 is an enterprise-grade 16-channel PCIe 4.0 NVMe hardware plus firmware turnkey SSD controller solution. The company has also launched PCIe 4.0 NVMe 1.4 Controller Solutions for Client SSDs.

For the quarter ended December 31, 2020, SIMO’s  net sales grew 14% versus  the prior quarter. The company’s eMMC+UFS controller sales grew 65% during the same period.

SIMO is expected to see a revenue growth of 17.8% for the quarter ended March 31, 2021 and 26.2% in 2021. Its  EPS is estimated to grow 25% in 2021 and at a rate of 7% per annum over the next five years.

SIMO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

SIMO  has an A grade for Value and Sentiment. In the A-rated, 98-stock Semiconductor & Wireless Chip industry, it is ranked #23.

In total, we rate SIMO on eight different levels. Beyond what we stated above we have also given SIMO grades for Stability, Quality, Momentum, and Growth. Get all the SIMO ratings here.

Axcelis Technologies, Inc. (ACLS – Get Rating)

ACLS designs, develops, and manufactures and services ion implantations and other processing equipment. The company’s products are used in the manufacture of semiconductor chips worldwide. ACLS’s stock has returned 51.9% over the past year; its last closing price was $39.75.

The company has shipped its Purion H200™ High Current Implanter to a leading power device manufacturer. ACLS has also delivered several Purion VXE and EXE high-energy systems to various manufacturers.

For the quarter ended December 31, 2020, the ACLS’ revenue…

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